Cities, regions seen as ‘essential’ to growth in emissions trading

In the absence of national action on emissions trading, cities and other local regions are stepping up with their own initiatives to cap the total amount of greenhouse gases in given markets, and contribute to global climate action.

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Delegates from 26 national and sub-national governments representing nearly half of the world’s economic output have pledged to strengthen cooperation in establishing “carbon markets” — while noting the special importance of such steps by cities and other local regions, particularly in the absence of national action.

In the coming years, cooperative steps might include technical cooperation and information sharing to support the implementation of emissions-trading schemes in other jurisdictions.

The occasion was the 10th anniversary of the world’s leading knowledge hub for such schemes, the International Carbon Action Partnership (ICAP). The statement was signed Friday in Lisbon at a three-day summit convened by ICAP.

It comes as emissions-trading systems are poised to operate in 19 jurisdictions. That includes the Tokyo metropolitan area and a nationwide set-up in China, the largest emitter of greenhouse gases.

By the end of the year, areas with such cap-and-trade schemes are slated to represent nearly half of the world’s economic output, according to ICAP.

Given the ongoing politicisation of climate action, however, attention has increasingly turned to cities and other sub-national regions.

“Commitments at the subnational level […] are essential to combating climate change,” the declaration reads. “Subnational efforts, including those of many ICAP members, are crucial to achieving our climate goals.”

Route to Paris

Emissions trading is an environmental policy that caps the total amount of greenhouse gases in a given market. Beneath that cap, it distributes the “available” emissions among participating companies in the form of tradeable allowances.

According to ICAP, the approach gives policymakers a high degree of certainty that climate targets will be met — as well as a system that can easily be interlinked with other systems (in this way, ICAPenvisions an eventual global set-up). At the same time, the schemes harness market forces to enable emissions cuts to take place where they are cheapest.

The group suggests that carbon pricing will provide a key route for fulfilling the ambitions of the Paris climate agreement, the global accord struck in 2015. As signatories “work toward the implementation of their commitments under the Paris Agreement, and subnational jurisdictions implement their own climate change programs, emissions trading and cooperation across borders will be a key building block in many jurisdictions’ strategies,” the ICAP declaration states.

“Emissions trading can help ensure that the goals of the Paris Agreement are met in a cost-effective manner.”

Unlike schemes operating in larger geographic areas such as states or countries, the Tokyo initiative covers only electricity consumers — in its case, commercial buildings — and not energy generators.

That is to say, compliance focuses on how much energy a building uses and forces building owners to trade credits among each other. But energy-generating facilities, which are often participants in other cap-and-trade schemes, don’t yet play a role in the Tokyo market.

Such local action could galvanise the national government to establish some sort of initiative nationwide, especially if enough prefectures join in to represent a significant portion of the country’s population and economic output.

Still, cities or metropolitan areas launching their own carbon-trading schemes remain rare today. That’s because there are only so many cities where the commercial building sector makes up such a significant portion of emissions that a policy of this nature makes sense.

Other financial capitals such as London, New York City and Paris, for example, already are covered by trading schemes in the European Union and the US East Coast.

According to ICAP, a national — or supra-national, as in the case of the EU— is preferable, but something is better than nothing. “In the absence of national leadership, subnationals can play a really important role advancing emissions trading systems,” ICAP’s William Acworth told Citiscope. “And over the last decade, they have done so.”

Cap and trade

The European Union launched the world’s largest such initiative in 2005. Two years later, Germany and California started ICAP as a global network to bolster the exchange of ideas. At the time, the US state was considering its own cap-and-trade scheme during an era of climate-sceptic national policy under then-President George W. Bush.

Following the establishment of ICAP, sub-national areas in North America — where unlike Europe, there were no national or supranational schemes — began exploring cap-and-trade. The Western Climate Initiative launched in 2007 with the hopes of promoting an international market among states and provinces in the western United States, Canada and Mexico. Meanwhile, on the U. S. East Coast, nine states began trading emissions under the Regional Greenhouse Gas Initiative in 2009.

“The ICAP members are pioneers in climate solutions and are all benefitting tremendously from the in-depth discussions we have had with representatives from other emissions trading schemes,” said Lois New, director of climate change for New York, one of the participating states.

“We have shared knowledge, developed capacity, discovered creative solutions to challenges and found synergies that will continue to encourage our work back home.”

While a robust western market has yet to materialise, California eventually embarked solo in 2012. It soon linked its market with the Canadian province of Québec.

Now carbon credits are traded on an open, cross-border market between the two sub-national jurisdictions.

Both jurisdictions credit ICAP with facilitating the complicated process of linking two markets between a state and a province with different legal systems, currencies and working languages.

“Collaboration with ICAP partners has helped to lay the groundwork for California’s cap-and- trade programme, our linkages with Québec, and our soon-to-be launched linkage with Ontario, as well,” said Mary Nichols, chairwoman of the California Air Resources Board.

This story was published with permission from Citiscope, a non-profit news outlet that covers innovations in cities. More at Citiscope.org.